The U.S. savings rate hovers just about 5%. This statistic reflects the ratio of personal income saved to personal disposable income during a certain period of time. I guess the good news is that it’s a positive number and it’s double of the rate reported back in 2008, the deepest part of The Great Recession. If you look at the savings rate over the last six decades, you’ll see a shocking downward trend. Back in the 60’s and 70’s Americans were saving nearly 10% of their disposable income. Now 62% of Americans have less than $1,000 in their savings account. So what gives?
To be perfectly honest, I have struggled to save in the past. Having money in my account felt like an invitation to splurge. After much reflection, I’ve learned that saving is really a mindset; it takes work to chip away at the root of our spending and savings habits. Don’t worry, this post isn’t about how to become a virtuous saver. As a daily money manager, I know that “getting real” is the first step in tackling unhealthy money habits. It’s also not a “one size fits all approach” either. In this article, I’ll share my personal journey of shifting habits toward savings and the surprising discoveries I uncovered.
Our Relationship with Debt & Our Cost of Living
To be fair, housing expenses haven’t kept pace with incomes. Student loan debt is staggering. According to The Economist, the cost of a home in the San Francisco Bay Area has increased 143% from Q1 1980 to Q2 2015. According to the California Association of Realtors, home prices in Santa Clara County rose 10% in 2015. So more of more of our paychecks are going to our most basic needs — shelter.Living in the Bay Area means that you’re probably spending a hefty portion of your income toward food and housing. Economics aside, I still think that we’ve fallen out of the habit of saving. And when you establish that habit, something magical happens.
Establishing a Savings Habit
Here are some of the lessons I’ve learned when making saving a priority:
If You Don’t See It You Don’t Spend It
I pay myself first. This is a phrase that many financial gurus use. Here’s the simple truth: when you routinely and automatically put money into savings before spending on anything else, you get used to not using these funds for daily expenses.
If you can automatically transfer money out of your operating budget (like a household checking account), the better your chances of not touching this money. This has absolutely been the case for my own saving journey. If it’s not in my personal checking account, I can’t spend my money on non-essentials.
You Get Inspired
As your savings balance continues to grow with every paycheck, you start projecting out it’s growth. For me, when I hit major milestones (e.g., $5,000), I started to daydream about reaching the next milestone. Rather than thinking about how I could spend those dollars, I pondered ways I could make it grow even faster.
Let’s face it, living in the Bay Area has its ups and downs economically. We’ve experienced high-tech booms and dot com busts and everything in between. While we’ve dug out of a real estate mess of short-sales and foreclosures, there’s still an element of volatility to Silicon Valley. When I see my savings account balance grow, I feel some of my underlying anxiety related to my financial situation lessen. I’m not saying that all your financial fears will vanish overnight; what I am saying is that you’ll feel more in control as your financial cushion increases. When an unexpected car repair pops up, I now take it in stride. While I’m not thrilled to dip into my savings, I feel better prepared for life’s bumps in the road.
Impulsive Spending Diminishes
I find that when I do spend money, I am more likely to carefully discern between my needs and wants. After saving consistently for about a year, I really started to notice how I evaluated non-essential purchases. If it was something I really wanted, I tuned into why.
Sometimes that “I gotta have it” feeling is fleeting. What helped me was to examine my feelings before making a purchase — large or small. Is it something I really wanted and sparked joy? If so, then I buy it without guilt. If the answer is maybe, then I put it aside. As I continue on my saving journey, I find that not spending gives me more pleasure than the high of an impulse purchase.
A Healthier Relationship to Money
Like me, I hope you’ll find that as your savings account balance gets healthier, you’ll notice your relationship to money change. When you do decide to spend money, you’ll look deeper at what motivates us to spend it. By tuning into my feelings and considering before I pulled out my credit card, I found a balance (pun intended) between saving and savoring. Money is a simply tool. When you appreciate it wisely, your relationship with it deepens.
Are you one of the 62% of Americans with less than $1,000 in savings? Working with a Daily Money Manager can help you get control over your spending so you can start saving.
Photo Credit: Low Jlanwel